Fiscal Analysis

Proposed Car Transfer Facility Raises Property Taxes

At the request of Milan Area Concerned Citizens, the Michigan Land Use Institute conducted an evaluation of the tax benefits and costs of the proposed Ann Arbor Railroad Transload Facility in Milan Township. We reviewed materials made public by the developer, Milan Township and the Southeast Michigan Council of Governments, and drew upon other studies regarding tax and land use issues in southeastern Michigan.

Based on our analysis, the Institute finds that the proposed development will provide virtually no tax benefits to Milan Township. The proposed development may provide a net increase in tax revenues and impact fees to the township equal to only $52.11 per household each year, or 14¢ per day. But for this modest increase in tax revenue, the development will dramatically degrade the quality of life for Milan Township residents and may burden each household with an additional expense of $1,643 per year to pay for a public water supply favored by the developer. The net effect of hosting the proposed transload facility in Milan Township will cost each household just about $1,591 per year.

The Institute does not believe a development that provides no significant new tax revenues and is opposed by a majority of residents because of its effects on their quality of life is in the best interests of the township.

THE PROPOSED DEVELOPMENTThe Ann Arbor Railroad wants to convert approximately 1,000 acres of land from agricultural to industrial for a transload facility to move finished automobiles between trucks and trains. Minor repair and assembly of the automobiles also will occur at the site. When completed, the transload facility will be valued at approximately $60 million. Township residents, technical experts, and regional and county agencies have raised concerns that the facility would degrade the quality of life for residents of rural Milan Township. The facility will almost certainly cause increased traffic, fugitive dust, nuisance odor, and air and light pollution. The transload facility will handle hazardous materials and any accidents involving them may contaminate groundwater resources in an area served entirely by private wells.

As part of the development, Ann Arbor Railroad agreed to contribute $700,000 to help pay for a public water system and to pay about $5 million for road upgrades to meet the traffic needs at the facility. The developer also agreed to pay an impact fee to the townshipto bring total payment from the facility to an average of $151,589 per year for fifteen years to help offset costs the township will incur to provide public services to the transload facility.

The facility is expected to pay the township $87,714 in property taxes if the state agrees that the facility is not railroad property, with an additional impact fee paid to bring the total township revenue to an average of $151,589 over fifteen years. Railroad facilities do pay property taxes but they are paid entirely to the State of Michigan. But the promise of an impact fee payment ensures a significant, stable payment to the township.

REVENUES AND EXPENSES FROM INDUSTRIAL DEVELOPMENTDeveloping the transload facility will result in increased revenue to the Milan Township government. The proposed $151,589 in combined impact fees and property taxes are many times greater than the $2,655 per year the township currently collects in taxes on the parcel, which are reduced because it is farmland enrolled in PA 116. But the increased revenues largely will be offset by the cost of increased services.

In Michigan, agricultural parcels generally require only $0.23 in services for every $1 they pay in taxes. With few residents and minimal public safety concerns, agricultural uses pay the greatest portion of property tax revenues in excess of expense to local governments. Industrial land uses also generally pay more in tax revenues than they require in services. Compared to agriculture, industrial uses have greater public safety concerns, such as traffic accidents, wear and tear on roads, and fire and vandalism. Each of these represents a cost to the local government, which provides services to address these concerns. Still, industrial activities only require between $0.72 and $0.78 in services for every dollar they pay in property taxes. Due to the nature of the proposed transload facility, which will have a high volume of heavy truck traffic and also handle large quantities of hazardous materials, the Institute believes the transload facility will require more public services than other industrial development. We estimate cost of services at the high end of the range, costing Milan Township 78¢ in services for every $1 paid in property taxes.

IMPACT FEES AND FUNDING OF PUBLIC WORKSRecognizing that the industrial development will require the Township to provide it with expensive services, the developers have agreed to pay an impact fee averaging $151,589 per year for fifteen years. Any property taxes collected from the facility by the Township will be credited against the impact fee amount. No documents provided to the Institute indicate that there are any restrictions on how Milan Township may spend the fee, so it is considered as a general revenue to the Township, just like the property tax millage collected to fund Township operations.

Additional Payment for Road ImprovementThe developer also agreed to fund $5 million in road improvements. But these improvements are intended solely to meet the transportation needs of the facility and do not provide any tangible benefit to township residents. This investment cannot be considered a benefit to the township. But by paying for its own roads, the developer should offset any costs for repairing and maintaining existing roads the township might otherwise bear. The long term capital maintenance of the new connector is not likely to be a burden borne by the township. The Michigan Department of Transportation generally maintains state roads.

Additional Payment for Public Water SupplyThe developer also agreed to pay $700,000 to plan for and install a public water supply to the township. Milan Township residents currently rely on private wells for their drinking water. Based on cost estimates provided by MACC, this payment represents about 4.7% of the total $15 million it is likely to cost for the water system.

The primary benefits of public water supplies are to allow for more intensive commercial and residential development than can be served by private wells and to protect residents against having to drink contaminated water. Groundwater is vulnerable to contamination from hazardous materials, such as those handled at the proposed facility.

Milan Township is a sparsely developed rural community, and there is no intensive development that would require a public water supply. Also, there are no industrial operations in the Township at present. The proposed transload facility does not require a public water supply. So the primary purpose of a public water supply appears to be to protect against contaminated water stemming from accidents at the proposed facility.

The system appears to provide no real benefits to Milan Township residents. But, if it is installed, township residents will have to pay for the remaining $14.3 million to install the system, or $22,343 per household. This would cost each household approximately $1,643 per year* in addition to any user fees charged.

Other ConsiderationsIt is difficult to place a price on quality of life concerns. Residents of Milan Township value a rural lifestyle free of industrial activity, noise, light, odor and heavy truck traffic associated with more intensively developed areas.

The Institute has not attempted to estimate the cost per household for relocating to another rural communities. But it would be significant. Certainly it would include the cost of relocation and the transaction costs of buying and selling real estate, easily exceeding $10,000 per home. The ability of residents to relocate also would be limited by difficulty in selling residential property near the proposed facility, and its attendant nuisances. A more detailed study is needed to determine the specific cost for relocating all the households whose quality of life would be degraded as a result of the transload facility being permitted.

*The annual cost is based on the Township financing the system over 20 years, at an interest rate of 4.5%

A more detailed study is needed to determine the specific cost for relocating all the households whose quality of life would be degraded as a result of the transload facility being permitted.